Supply Chain Expense as a Percentage of Total Revenue

Supply Chain Expense as a Percentage of Total Revenue

KPI Details

Supply Chain Expense as a Percentage of Total Revenue measures the expense incurred through all supply chain processes and procedures (i.e., all costs related to distribution, logistics, procurement, materials management, etc.) in relation to the total revenue generated by the company over the same period of time. A relatively high value for this metric is typically related to a few common factors, including highly manual (i.e., error and rework prone) supply chain processes and procedures (e.g., distribution, logistics, procurement, materials management, order management, etc. processes that are almost entirely managed through manual labor), overstaffing of one or all supply chain-related departments, general inefficiencies within supply chain processes (e.g., inaccurate demand forecasting methods, inefficient customer order documentation tracking, sub-par procurement policies, poor inventory management, etc.), and sub-par supply chain employee training and performance. While companies typically seek to streamline operations and employee positions to reduce expenses in their supply chain departments, great care should be taken when doing so as too many layoffs can have a negative impact on company morale and make it difficult to provide customers the products they ordered in a timely fashion.

KPI Definition

The expense incurred through all supply chain processes and procedures (i.e., all costs related to distribution, logistics, procurement, materials management, etc.) divided by the total revenue generated by the company over the same period of time, as a percentage.

KPI Best Practices

• Perform preventative maintenance to minimize costly equipment breakdowns and injuries to workers
• Well-maintained distribution and warehousing equipment to minimize delays
• Well defined materials management and freight handling procedures to minimize damage
• Adjust warehouse staffing levels to forecasted demand to minimize overstaffing

KPI Calculation Instructions Supply Chain Expense as a Percentage of Total Revenue?

Two values are used to calculate this KPI: (1) the expense incurred through all supply chain processes and procedures, and (2) the total revenue generated by the company over the same period of time. Include labor (wages, salaries, commissions, benefits), overhead (occupancy, utilities, advertising, legal fees, travel costs, etc.), and technology (hardware, software, etc.) costs in the numerator. Include the expenses incurred through supply chain-related activities (i.e., all costs related to distribution, logistics, procurement, materials management, etc.). Do not include manufacturing expenses in this calculation.

KPI Formula :

(Supply Chain Expense Incurred / Total Company-Wide Revenue Generated) * 100